Why Costing for Healthcare Services is So Hard

Healthcare CXOs face several challenges in making strategic costing decisions, often hindered by complex administrative tasks, evolving regulations, and the dynamic nature of healthcare services. The right costing strategy can significantly improve hospital operations, profitability, and patient satisfaction.

Despite how critical healthcare costing is, it is a complex activity that most hospitals and care providers find hard to get right.

Read on as we shed light on the complexity of healthcare services costing, the repercussions of poor costing, and how activity-based costing (ABC) can pave the way for higher costing effectiveness.

Understanding the Complexity of Healthcare Services Costing

Healthcare services costing, although crucial, is inherently complex due to several factors:

  1. Dynamic nature of services: Healthcare services are extremely dynamic, ranging in complexity, duration, and resources needed. For example, a simple visit to a physician for cough symptoms is far cheaper than tonsilitis surgery, which demands an extended hospital stay.
  2. Complex administrative tasks: The significant amount of administrative work across billing, insurance processing, and regulatory compliance further makes the task of healthcare costing extremely challenging.
  3. Evolving regulations: The constant slew of new and updated regulations makes it difficult for healthcare organisations to balance competing priorities. Under the pressure of compliance, costing often takes a backseat, eroding autonomy and infringing on the patient-physician relationship.
  4. The presence of multiple siloed healthcare systems: The healthcare IT landscape consists of a multitude of systems that make it difficult for healthcare organisations to have the necessary insights into cost drivers. The unavailability or incompleteness of critical cost data needed for accurate pricing decisions severely impacts costing efficiency and effectiveness.
  5. Reliance on manual labour: Despite the complexity of healthcare services costing, many hospitals continue to carry out calculations manually. Not only is such an approach extremely time-consuming while also extremely prone to errors. Most pricing decisions end up being made based on gut instincts and not on evidence-backed data.
  6. The impact of global factors: Global factors such as fluctuating economic trends, rising inflation, and global pandemics also impact healthcare services costing on a macroeconomic level.

The Impact of Poor Healthcare Costing

Healthcare services costing, when not done right, can have several far-reaching consequences. The presence of siloed systems, manual effort, and the complex nature of healthcare costing results in poor insights into:

  • Revenues and expenses across services, departments and locations and in relation to the competition.
  • Why there is a high insurance claim rejection
  • The variations in resource use for different illnesses, patients from different demographics, the quality of healthcare systems, and more.
  • The feasibility and impact of adding a new program, hiring new talent, expanding to a new location, investing in healthcare equipment, etc.

The Need for Activity-based Costing

Given the many complexities of healthcare costing, accurately estimating and managing healthcare costs is the need of the hour. This requires careful identification and analysis of cost drives, stronger stakeholder collabouration, and a fine balance between cost, quality, and accessibility.

Pro~Active Solutech offers comprehensive healthcare cost & management consulting services, enabling healthcare companies to optimise costs and witness profitability improvement. Using activity-based costing, Pro~Active Solutech helps institutions accurately associate costs with each service or patient they encounter, thereby overcoming complexity and improving accuracy.

Here are three compelling reasons why partnering with Pro~Active Solutech can transform your hospital’s financial health and operational efficiency:

1. Strategic Pricing for Optimal Positioning and 100% Insurance Claim Settlement

Hospitals must achieve the right pricing balance to ensure they are positioned correctly in the market—whether premium, affordable, or value-based. Pro~Active Solutech’s activity-based costing (ABC) solutions provide detailed insights into the true costs of services, enabling hospitals to:

  • Set Competitive Pricing: Understand the actual cost of each service, from consultations to complex surgeries, to set prices that reflect value while remaining competitive.
  • Maximize Insurance Settlements: Ensure that all costs are justified and transparent, facilitating smoother insurance claim processes and achieving 100% claim settlement rates. Our collaboration with one of the largest hospital chains in India enabled them to streamline their pricing strategies and improve their insurance claim success rates through precise cost allocation and documentation.

2. Profitability Analysis and Informed Investment Decisions

Hospitals often face the challenge of making large investments without the ability to proportionately increase prices. Pro~Active Solutech’s ABC solutions help in:

  • Detailed Profitability Analysis: Break down costs by service, department, and procedure to identify profitable and non-profitable areas.
  • Informed Investment Decisions: Assess the financial impact of adding new programs, expanding facilities, or investing in new technology. By partnering with a world-class eye hospital based in Chennai, we enabled them to make data-driven investment decisions that optimized their capital allocation and enhanced their financial stability.

3. Tailored Insights for Operational Efficiency

Operational efficiency is critical for delivering high-quality care while managing costs. Pro~Active Solutech helps hospitals achieve this by providing insights that facilitate the right mix of staff and resource allocation:

  • Optimize Workforce Management: Analyze the cost and efficiency of staffing levels, including doctors, medical technicians, nurses, and support staff. Our solutions helped the second largest hospital chain in India achieve optimal labor utilization, reducing overstaffing and understaffing issues.
  • Enhance Resource Utilization: Identify and eliminate non-value-adding activities, streamline processes, and ensure the efficient use of medical supplies and equipment. For the world-class eye hospital in Chennai, our ABC approach led to significant operational improvements and cost savings.

Streamline Healthcare Costing With ABIS~Pro

The right approach to healthcare costing can go a long way in improving profitability as well as patient satisfaction. As a path-breaking product in the field of cost management solutions, ABIS~Pro unearths useful insights into issues that have been plaguing healthcare costing. Through accurate identification of cost drivers and seamless cost modelling, it helps streamline costing decisions across variance analysis, budgeting, and more.

Looking to streamline healthcare costing and realise your cost reduction goals? Explore our services or speak to our experts today!

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